Twitter Has Never Been Stronger—or Weaker

Wall Street pressure has had a negative and often demoralizing impact on the company.

Image from Twitter

If you listen to the financial news, and the financial markets, Twitter is floundering. The company is actively shopping itself to deep-pocketed buyers in hopes of ending the cycle of raised expectations and dashed hopes that has characterized its relationship with Wall Street. But a number of those potential buyers, including Disney and Microsoft, have already passed, and Salesforce.com just told the Financial Times, "We've walked away." The uncertainty about Twitter’s future has made the company’s share price as volatile over the past couple of weeks as a penny stock’s, and has raised questions about the company’s future if no sale materializes.

If you use, or even scan, Twitter, though, the service seems as strong, and as influential, as ever. The past week alone has seen typically sharp commentary on Sunday night’s Presidential debate and a series of typically nutty, and newsmaking, tweets from Donald Trump. (Twitter was even a point of discussion in the debate itself, when Trump responded to a question about a middle-of-the-night tweet attack with a rambling answer that ended with this undeniable statement: “Tweeting happens to be a modern-day form of communication. . . . It's a very effective form of communication.”) More important, last weekend, after the tape of Trump bragging about groping women was released, hundreds of thousands of women tweeted out personal stories of being molested and assaulted, using the hashtag #notokay. It was an extraordinary collective protest against the casual acceptance of sexual assault, as well as a testament to the social impact of Twitter at its best.

That disjunction between, on the one hand, the market’s lack of faith in Twitter and, on the other, Twitter users’ profound engagement with the service, is really at the heart of what’s happened to the company in recent years. When Twitter went public, almost three years ago, it was a market darling: its stock nearly doubled in its first day of trading, and for a brief period Twitter’s market capitalization was actually larger than Facebook’s. But, in some ways, that was as good as it got for Twitter as a company. Though it has grown revenue to more than two billion dollars, has three hundred million active users and hundreds of millions of visitors, and is now a crucial medium for cultural and political discourse, Twitter has regularly disappointed investors. It has never turned a profit and has made a practice of missing earnings estimates. And though Twitter’s revenues, which come almost entirely from advertising, have been growing at a respectable clip, its user base is growing too slowly for Wall Street’s taste.

Last summer, the former Twitter C.E.O Dick Costolo argued that the company’s problems were the result, in part, of pressure from Wall Street, which was forcing Twitter to pay more attention to its stock price than its underlying business. Those comments were dismissed by some as sour grapes. But in some important sense Costolo was right. Twitter, in fact, serves as an object lesson in the danger of becoming a public company too soon.

The familiar rap on Wall Street pressure is that it forces companies into a short-term mentality, focussing more on the next ninety days than the future, and leading them away from investments that can build real value in the long run. This critique, as I’ve written about before, is overblown: companies today are valued based on what investors think they’ll do over the next ten to twenty years, and a company like Amazon, which didn’t make a profit until its ninth year, shows that, if you win investors’ trust, they are more than happy to let you invest for the long run. Nor is it obvious, in Twitter’s case, that the company has underinvested in the future—its R. & D. spending is reasonable for a company its size. And, in any case, Twitter is still valued at more than twelve billion dollars, which is quite impressive for an unprofitable company.

Still, even if Wall Street pressure hasn’t led Twitter to neglect the future, it’s had a negative and often demoralizing impact on the firm. Realistically, Twitter never had any real hope of living up to the inflated expectations that greeted its I.P.O. But companies can’t tell investors that their expectations are unrealistic: once they go public, they have to try to fulfill them. Failing to live up to impossible expectations fostered the image of Twitter as a company that was always falling short. It led the company to spend more energy trying to monetize users rather than improving their experiences. And Twitter’s tumbling share price (it’s now down more than sixty per cent since its first day of trading) has served as a constant negative public referendum on its prospects, which has eaten away at its employees’ morale, a problem compounded by the fact that Twitter relies so heavily on stock-based compensation to pay its workers.

This doesn’t excuse Twitter’s leaders for the questionable choices they’ve made over the years. The company’s done a notoriously poor job of dealing with harassment and hate speech on its service. It has taken it surprisingly long to do away with rules that seem designed to annoy users, like counting links and user names against the hundred-and-forty-character limit. In a well-known public letter last year, the investor Chris Sacca made a strong case that Twitter needed to do a much better job of making the service more welcoming and user-friendly as a way of broadening its reach beyond its hard-core base. As Sacca pointed out, millions of users create Twitter accounts and then quickly abandon them. Changing that would assuage Wall Street’s concerns about the slow growth of the user base, and would meaningfully increase the company’s ad revenue.

Yet it’s important to see that even these critiques of Twitter, sensible as they may be, are predicated on the idea that the proper goal for the company is to grow ever bigger. It’s a way of criticizing Twitter for not being Facebook or Google. But the truth is that not every company needs to be—or should be—huge. Nor is growth the only, or even the most important, metric by which to judge a company. Indeed, if you look at Twitter in terms of social impact and user engagement, you would say that the company is doing quite well and adding a great deal of value. The problem is that, for a publicly traded company, that value is irrelevant if it can’t be translated into continually rising profits. Going public pushes you to define yourself in the market’s terms rather than your own. As a private company, Twitter might be seen as a great success. As a public company, it’s a perpetual disappointment.

James Surowiecki is the author of “The Wisdom of Crowds” and writes about economics, business, and finance for the magazine.